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Elements of
World Class Supply Chain Management

ITC

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Supply Chain Management
Logistics management develops a plan
for the flow of products & information
through a business
Supply chain management aims at
coordinating the processes of all supply
chain members, both downstream
towards customers & upstream towards
suppliers
...
1-2

Strategy is:
a planning activity focused on the long-term
decisions of the supply chain
These decisions include:

 The choice of products & services to offer to customers
 The structure of the logistics network & the supply chain
 The capabilities the supply chain will specialise in
 The types of relationship between supplier & customers

Strategic decisions have a significant
impact on the organisation!
ITC

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The Logistics “Pipeline“
Cost
• Load size
• Frequency

Seller
“Valves”

ITC

Cost

• Store size
•Transport
• Inventory
Main capacity
• Handling
store
capacity

• Store size
• Inventory Working
store
• Handling
capacity

•Requirements
“Valves”

User

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Achieving a Competitive Advantage
Competitive advantage is:
an advantage that is sustainable over a long period &
reliant on systems of capabilities rather than a
single capability
The following have been identified as opportunities
for gaining a competitive advantage:
 Globalisation
 Integration
 Time-based competition
ITC

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Action Point

2
...


Now think about the challenges that globalisation presents to
your company
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Integration

Supply chain members need to be integrated in
terms of their processes, activities & systems
Integration is vital for companies operating
internationally
Advantages of integration include improved quality,
innovation sharing, reduced costs, & improved
scheduling of production & delivery
Levels of integration:

 Internal Integration

 External Integration
 Capability Integration
 Relationships

ITC

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The company’s internal structure has to be
aligned & integrated
 Internal functions must align along processes that
lead to specific product & service value
 Goals must align to an overarching corporate
strategy
 Communication barriers must be reduced between
activities to enhance information flow throughout
the organisation
ITC

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The Value Chain
The activities within the value chain are split into
two sections:
1) Primary activities

These are activities associated with physical creation of
the product, marketing activities, activities involved with
the transfer to the buyer & after-sale support

2) Support activities

These activities provide support to the organisation as a
whole to keep it functioning & provide the infrastructure
of the company

ITC

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Capability Integration
Under supply chain management each
member of the supply chain realises that
they cannot be the best at every activity &
need to rely on capabilities outside of the
organisation
In order to add the most value on the whole
supply chain, organisations must decide
which activities & capabilities to invest in
& perform
ITC

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Action Point

2
...
What further integration
opportunities can you identify?

ITC

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Responsiveness

 The ability to respond to changing demands
is called agility
 Agility means meeting customer demands quickly so
that customers do not turn to substitutes from
competitors
 In order to provide time compression benefits to customers,
companies need to posses the following skills:
 New product development and introduction competencies
 Cross functional development team abilities
 Appropriate & timely feedback from customers
 Lead time management
ITC

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Action Point

2
...
Compare and contrast their life cycles
...


ITC

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This reliability comes from
reducing inventory levels as well as reducing the
need for quality detection throughout the supply
chain
ITC

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Action Point

2
...
Is there any room for improvements?

ITC

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Action Point

2
...
How is your organisation currently
dealing with this waste?

How could you decrease the waste you just identified?

ITC

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Agile Supply Chains
Efficient (lean) supply chains using JIT work when:
 Demand is relatively stable & predictable
 Product variety is low
 Price & quality are key to advantages in the market place

Agile (responsive) supply chains :
 Are characterised by very flexible structures, production
capabilities & people within each part of the supply chain
 Focus on responsiveness over waste elimination
 Work best when customer service
& responsiveness lead to
competitive advantage

ITC

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Pull Strategies
Pull strategies mean that there is no production until
the customer has signalled demand by ordering a
product or service
Advantages:
 No inventory costs as the product is made as soon as the order
is received
 Information flow throughout the supply chain
 Collaboration between supply chain members

Disadvantages:
 Smoothing demand is difficult
 Time taken to build final product or service might be longer as
the supply chain has to make the order
ITC

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& PULL

PUSH

?

?

?

?

?

Determining the cross-over point in the supply
chain from PUSH to PULL - factors
Demand change & forecast reliability (“all we know
about the forecast is that it will be wrong”)
Required product configurations & variability
Required customer response time (balancing
capacity with inventory)
ITC

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Where in the supply chain and how
much inventory to keep?

?

Materials
suppliers

?

Component
manufacturer

?

?

Assembler

Storage

?

Retailer

•Cost

•Flexibility

•Service level
•Response time
ITC

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Push or pull?
Thinking about your own supply chain, overall should it be more
like an efficient supply chain or more like an agile supply chain?
What features of the supply chain make you believe this?

Which strategy is more suitable for your customers, push or
pull? What features of your customers lead you to this
conclusion?

ITC

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Push or pull? (continued)
Think about your overall supply chain
...
What features of each process make
you believe they are more suitable for push or pull?

Finally, how could your overall supply chain benefit from
implementing a postponement strategy?

ITC

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Cost Reduction
The reduction of total cost of ownership is
key to cost advantage
Total cost of ownership measures include
both ownership & post-ownership costs
Logistics cost advantages include:
 Efficient use of capacity
 Reduction in inventory levels
 Faster & more reliable information exchange

ITC

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The Value Advantage

Differentiation can be achieved by more advanced or
reliable technology and/or tailored services to meet
customer needs
Customers are buying not just a product but the
benefits of the product:
 Intangible & psychological benefits
 Tangible benefits based on superior performance

The logistics value advantage includes:
 Provision of tailored logistics service
 Responsiveness to the customer
 Reliability of the service to deliver to expectations

ITC

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Key Performance Objectives
Long term supply chain efficiency and
success rely on performance advantages
which other supply chains will not have
These performance objectives include:
 Cost
 Quality
 Flexibility
 Speed
 Dependability

ITC

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Speed Increase
The speed objective is similar
to
12
the time concept
3
9
6

Speed of delivery involves:
 The production of goods & services
as fast as possible
 The delivery to the end-customer
quicker than competitors
ITC

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Action Point

2
...


What improvements are possible?

ITC

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Order Qualifiers
Order winners directly help products &
services win orders by:
 Accomplishment of performance objectives
 Branding
 Technical superiority

Order qualifiers allow entry into the
market & are the basic performance
standards
ITC

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Are you an order winner?
What are the order qualifiers in your organisation’s industry?

What are the order winners? Give examples from your firm and
your competitors
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4-12

Developing supply chain strategies
Supply chain strategy must be linked with the
overall corporate strategy & integrated with
the strategies of other supply chain members
To achieve this, there are six stages:
1) Develop a supply chain strategy
2) Supply chain information gathering
3) Develop effective partnerships & alliances
4) Pilot new supply chain solutions
5) Organise for supply chain performance
6) Develop measurement systems for supply chain
performance
ITC

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Developing a supply chain strategy
Think about your entire supply chain
...


Why is it important to pilot new supply chain solutions? Where
could piloting be most effective for your company’s supply chain?

ITC

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4PL Providers
4PL (fourth party logistics) providers take
the concept of 3PL a stage further & provide all
services related to the management & coordination
of the entire supply chain
4PL providers are information-based & use
information to both operationally & strategically
coordinate & manage the supply chain
4PL often manage several 3PL providers where the
3PL provide the physical material management &
distribution, whereas the 4PL uses information to
optimise the supply chain
ITC

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Outsourcing logistics
What are the advantages of using 3PL, 4PL and no outsourcing
for your company?

Based on the results from the above question, which method do
you believe is more suitable to your company?

ITC

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Relationship Types Based on
Impact on Company Margin
Relationships depend on the organisational activities
The relevance of the activity to the sustainability of
the company‘s margins determines the type of
relationships the organisation will enter in
Organisations have to consider whether or not:
 There is a capability inside the organisation
 To have the activity supported by an outside company
 To have the entire activity provided by another company

ITC

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Relationship Types Based on Certainty &
Dependency
Certainty involves the probability of the
success or failure of an event or transaction
& is linked to the amount of information or
knowledge regarding the behaviour of a
supplier
Dependency refers to the degree to which a
firm is reliant upon a supplier
The evaluation of the two concepts in relation
to the supplier will define the relationship
ITC

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What is the nature of your relationships?
Seven relationship types based on impact on company margin
were identified
...

Is one relationship type dominating, or is there a mix of
different types of relationships? Explain the reasons behind your
preferences
...
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Relationship Types
Based on Certainty and Dependency
H

Strategic
Collaboration

Dependency

Opportunistic
Behaviour

Traditional/
Adversarial
Arms-length

Tactical
Collaboration

L
L
ITC

Certainty

H
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Opportunistic behaviour
Think about your company and suppliers
...
How could you move the relationship out of
this box?

ITC

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Supply Positioning Model
One way to evaluate opportunities for
supply chain alliances is to plot all the
company‘s bought-in supplies &
services in the matrix of the supply
positioning model
The two dimensions of the supply
positioning model are:
 Total annual expenditure on purchase items

ITC

 An item‘s criticality to the company which
can be high, moderate, low or negligible

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…when to outsource & use supply chain alliances

H

Impact/
supply
opportunity/
risk

M

L

N

Bottleneck Items

Critical Items

Ensure
availability of
supply

Develop supply
chain alliances

Routine Items

Leverage Items

Manage
efficiently or
outsource

Reduce supply
variety & use your
company’s leverage

80% of items = 20% of value

20% of items = 80% of value

Expenditure
ITC

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Action Point

2
...

H

Impact/
supply
opportunity/
risk

M

L

N

ITC

80% of items = 20% of value

20% of items = 80% of value

Expenditure

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Making priorities for supply partnerships (ctd)
For each item, indicate which actions you may carry out to
improve your company’s supply/logistic management
...


Consider very carefully what benefits each potential alliance
identified in the last question can bring
...
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The Alliance Process

The process of forming an alliance:
 Gaining awareness of the need for an alliance
 Conceptualising the alliance
 Pursuing the alliance




Determining the selection criteria
Searching for partner candidates
Selecting an alliance partner

 Confirming the alliance




Formalising the alliance intentions & expectations
Identifying performance measures
Defining feedback mechanisms to ensure continuity

 Implementing & managing the alliance
 Assessing the alliance
 Terminating the alliance
ITC

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Action Point

2
...
Compare the suggested stages for forming an alliance
with your own experience
...
6-19



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